International Maritime Organization

Shipowners and refiners are struggling with how to prepare for January 1, 2020, when all vessels involved in international trade will be required to meet significantly stricter limits on emissions of sulfur oxides (SOx), either by using fuel with a sulfur content of less than 0.5% or by “scrubbing” the exhaust of ship engines when using the much higher-sulfur bunker fuel that most ships now rely on. The International Maritime Organization’s (IMO) new sulfur rule isn’t a minor tweak. It’s a game changer that already is causing widening spreads on the futures market between 3.5%-sulfur heavy fuel oil (HFO) — the traditional global bunker fuel — and rule-compliant low-sulfur distillates. The rule also promises to be a boon to complex Gulf Coast and other refineries that can break down residual-based HFO into higher-value, lower-sulfur distillates. Today, we begin a new series on how shipowners, refiners and the markets for HFO and low-sulfur marine fuel are responding (or not) to the coming change in global bunker requirements.

In January 2015 new international regulations came into force that reduced the permitted sulfur content in ships “bunker” fuel in Northern European and North American coastal regions. So far, international shipping companies and cruise lines have been responding to these rules primarily by switching to marine gasoil (MGO), burning lower-sulfur fuel oil, or sticking with higher-sulfur fuel oil and adding “scrubbers” to capture most of the sulfur being emitted by their ships’ engines. More recently, though, some of the shipping sector’s biggest players have unveiled plans to boost the use of liquefied natural gas (LNG) as a bunker fuel, figuring that LNG bunkering will not only help them meet existing regulations but the tougher rules likely to be implemented over the next few years. Today, we begin a short series on the opportunities and challenges associated with shifting ships from fuel oil to LNG.